The Interaction of Monetary and Macroprudential Policies

By Aino Silvo. Journal of Money, Credit and Banking, 2016

143 citations recorded by the source corpus.

I analyse the dynamics of a New Keynesian DSGE model where the financing of investments is affected by a moral hazard problem. I solve for jointly Ramsey-optimal monetary and macroprudential policies. I find that when a financial friction is present in addition to the standard nominal friction, the optimal policy can replicate the first-best if the social planner can conduct both monetary and macroprudential policy to control both inflation and the level of investments. Using monetary policy alone is not enough to fully stabilise the economy: it leads to a policy trade-off between stabilising inflation and the output gap. When policy follows simple rules instead, the source of fluctuations is highly relevant for the choice of the appropriate policy mix.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/b27bf248ce4d2cb8570719bfa17e443ace59bf84

Citations in the corpus

• How Effective are Macroprudential Policies? An Empirical Investigation (2017, unknown): “We collect the same data used in Kuttner and Shim (2014) for housing credit, using BIS databases, central bank websites, and the commercial sources Datastream and CEIC.”
• How does credit supply respond to monetary policy and bank minimum capital requirements (2016, unknown): “See also Dell’Ariccia, Laeven and Marquez (2010), Angelini, Nicoletti-Altimari and Visco (2012), Gelain and Ilbas (2013), International Monetary Fund (2012, 2013). Interestingly, Gelain and Ilbas (2013) argue that coordination of monetary policy and capital policy may not be desirable, particularly ”